Under the Reform and Integrity Act of 2022 (RIA), the U.S. Citizenship and Immigration Services (USCIS) must audit each designated Regional Center at least once every five years. Stakeholders in the EB-5 space have been navigating the audit process and aiming to identify trends that Regional Centers are seeing.
This article discusses various aspects of Regional Center audits and the standards that USCIS adheres to when conducting an audit.
Something important to keep in mind is that the RIA is equally novel to auditors as it is to regional centers undergoing an audit. Additionally, Regional Center models vary, posing challenges for the auditors to think objectively about each Regional Center they visit. Regional Centers can help mitigate this challenge by clearly documenting and explaining their unique business models and internal processes, ensuring auditors understand how their operations align with regulatory requirements.
AUDITING STANDARDS APPLICABLE TO EB-5 REGIONAL CENTER AUDITS
As of Apr. 23, 2024, USCIS began applying Generally Accepted Government Auditing Standards (GAGAS), also known as the Yellow Book, to plan and perform Regional Center audits. USCIS announced that it would generally use GAGAS, and such general application of these standards does not remove an officer’s discretion in considering the audit results in making adjudicatory decisions. The Government Accountability Office (“GAO”) is responsible for producing these standards, and to date, the 2018 Yellow Book is the effective version until the implementation of the 2024 Yellow Book, for periods beginning on or after Dec. 15, 2025. Early implementation of the 2024 Yellow Book is permitted.
The 2024 revision of GAGAS contains major changes from and supersedes the 2018 version. USCIS has not announced which version it is using while conducting Regional Center audits in 2024, but it seems intuitive to become familiar with the 2024 version of the Yellow Book.
Section 2.21 of the Yellow Book (2024) states that “[t]he auditors’ determination of noncompliance with applicable requirements is a matter of professional judgment, which is affected by the significance of the requirement(s) not followed concerning the engagement objectives.” For example, there may be a particular document that a Regional Center fails to produce during an audit. Still, if the specific significance of that document is not as crucial as other requested documentation, then it is likely that the auditor will consider the Regional Center to have complied overall.
Under the Yellow Book standards, whether an instance of noncompliance causes a negative outcome once the audit is completed depends on the overall aggregate effect of noncompliance with GAGAS requirements. That being said, think of the conclusion of the audit as dependent on the totality of the circumstances and the significance of the noncompliance that the auditors observed, if any at all.
HOW IS AN AUDIT INITIATED?
An audit is initiated by receiving a notice of audit and a letter listing the documentation the Regional Center must submit for review. The documentation initially requested typically includes a list of the Center’s staff, financial statements, bank statements, and records of the movement of funds from one place to another. An audit can also include researching information in government systems and reviewing commercial and public records. Auditors also typically ask for documentation regarding the structure of any NCE and JCE involved.
It is important to pay attention to any deadlines in the audit notice or request for documentation and ask for clarification if terms do not make sense to the Regional Center staff. If a Regional Center’s management does not think it can produce documents by the deadline, a respectful request to extend the deadline will likely be granted if the delay is reasonable.
Regional Centers are generally given two weeks to produce the requested documentation, which should be enough time if a Regional Center is organized. However, a Regional Center structured so that third parties are involved could feel that two weeks is insufficient if it is not prepared before the audit. Others may be tempted to submit additional documentation that is not requested, which could unnecessarily prolong the process. Where a Regional Center operator does not have all the documentation requested, it would be wise to be forthcoming and transparent about it.
WILL A REGIONAL CENTER BE REQUIRED TO PRODUCE DOCUMENTS COVERING FIVE YEARS?
Regional Centers are generally asked to produce documentation and records going as far back as the effective date of the RIA, which is Mar. 15, 2022. Auditors may pose questions about projects organized several years ago but were no longer active when the Reform occurred. Since the process is bilateral and the auditors are getting to know the timelines and structures of the projects they are looking into, Regional Center staff should not be alarmed by pre-RIA project inquiries. They may be asking about older projects during a conversation that closed before the law came into effect simply because they want to grasp what the Regional Center’s model is about overall.
AFTER THE NOTICE OF AUDIT AND REQUEST FOR INFORMATION
USCIS will schedule a virtual video conference with the Regional Center. This is also a good time to ask questions about the request for information’s contents and get to know the audit team assigned to the Regional Center. After that, USCIS will decide whether fieldwork in the form of a virtual or an in-person site visit is necessary. It is likely that most, if not all, Regional Centers will be subject to an in-person site visit for their first audit under the RIA of 2022 because USCIS wants to verify that the Regional Center exists. The auditors want to determine that internal controls are in place and to meet the people disclosed in filings and petitions. However, if multiple Regional Centers are located at one site, it is possible that USCIS would conduct a single site visit to audit each of the Regional Centers. It is likely that once a Regional Center experiences its first audit and in-person site visit under the Reform and Integrity Act, its subsequent audit would not necessitate an in-person visit unless it has experienced a material change.
THE RELEVANCE OF MOCK AUDITS
If a Regional Center has not received a notice of audit yet, this would be an excellent opportunity to organize relevant files that will likely be requested. It is also an ideal time to conduct a mock audit, allowing the entity to identify and address potential compliance issues before an official review. This proactive approach helps ensure all relevant documentation is organized correctly and available.
During the mock audit, staff can review investor records, verify financial tracking, and assess adherence to the latest regulatory requirements, reducing non-compliance risk. The mock audit should also include a conversation about the scheduling aspect of the actual audit. Do any key people have upcoming travel plans, and how likely could they be rescheduled if the Regional Center is notified of an audit requiring their presence? The mock audit may also include a review of the Regional Center’s compliance policies and procedures and a discussion of whether those policies are being adhered to.
Documenting the mock audit is valuable because it provides a clear record that can be kept on file to demonstrate compliance efforts to USCIS auditors. Readily available documentation shows that the Regional Center is committed to maintaining transparency and adhering to the RIA requirements. In the event of an audit, presenting evidence of a thorough mock audit can highlight the center’s diligence in identifying and addressing potential issues, which may foster trust and reduce scrutiny during the official audit process.
A RECOMMENDATION FOR USCIS
USCIS’s website’s Question and Answers (Q&A) page provides immense value to EB-5 Regional Center Program stakeholders. However, the agency should consider publishing alerts like the U.S. Securities and Exchange Commission’s Risk Alerts, which inform investment advisers and broker-dealers about trends in noncompliance and examination findings. Risk alerts would provide EB-5 Regional Centers with valuable insights into common areas of deficiency, helping them proactively address compliance issues before an audit.
These alerts would highlight patterns of noncompliance, regulatory changes, and areas of focus during USCIS audits, enabling Regional Centers to better prepare for audits, maintain high standards of transparency, and reduce the risk of termination. Such guidance would foster a stronger compliance culture within the EB-5 program, benefiting both the centers and investors.
Isabel Alcantara
Isabel Alcántara is the founding and principal attorney at Alcantara Law, LLC.
View Full ProfileDISCLAIMER: The views expressed in this article are solely the views of the author and do not necessarily represent the views of the publisher, its employees. or its affiliates. The information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal, immigration, and financial experts prior to participating in the EB-5 program Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.
